All day I scan the charts looking for technical patterns to trade. My Trending 123 Pattern Scan powered by Recognia is one useful tool I have to scan the markets quickly, and it is showing two polar opposite technical events for these medical services stocks.
The price seems to be resuming a sharp rally after taking a brief pause. A bullish flag pattern occurs during a dynamic market rally, representing a brief pause as the market “catches its breath” before running off again in the same direction. The pattern consists of two parallel trend lines, often sloping downward against the prevailing uptrend, and is confirmed when the price breaks through the upper boundary to resume the rise.
As the flag develops, the volume tends to decrease. Following a positive product announcement, the price may have reached an unexpected high, and fewer buyers will be willing to buy. Interest in the stock may resume, however, as prices drop, and sellers begin to lower their price. The increased activity explains why you will often notice a sharp spike in volume at the end of a flag.
Recommendation: Buy FVE for a $7.25 – $7.45 target, with a $5.78 stop.
The price seems to have reached a top, after failing to break through a resistance level and ultimately breaking downward in a sign of reversal to a new downtrend. The double top pattern forms during an uptrend as the price reaches two distinct peaks at roughly the same price level. Volume reflects a weakening of the upward momentum, tending to diminish as the pattern forms, with some pickup at each high, less on the second high. Finally the price breaks down below the lowest low to confirm the bearish signal.
The deeper the trough between the two tops, the better the performance of the pattern.
Recommendation: Short MOH for a $28.40 – $28.90 target, with a $33.91 stop.
InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123. For more information on which service is for you click here.